In this paper we theoretically and empirically analyze equilibrium search models of the labor market. The Mortensen equilibrium search model is generalized by allowing for continuous distributions of firm productivity types within a given labor market.

The critical role of free entry to correct inherent deviance behavior has been stressed by Vanek (1970), Meade (1972) amongst others. The equivalence theorem (Dreze 1976) defines that labour and entrepreneurial management both lead to the same Pareto optimal equilibrium provided that there is...